Lloyds bank posts biggest half-year profit in eight years

LONDON, July 27 (Reuters) - Lloyds Banking Group reported its biggest half-year profit in eight years on Thursday and an increase in interim dividends despite a slowdown in the economy, in its first set of results since the bank exited government ownership.

Britain's largest retail bank reported a statutory pretax profit of 2.5 billion pounds ($3.28 billion), about 4 percent higher than last year.

That was lower than the 2.86 billion pound estimate of analysts surveyed by the bank.

The modest increase in profit was driven by stronger income, but was tempered by a higher-than-expected bill for compensating customers mis-sold loan payment insurance in what is Britain's costliest consumer scandal.

The bank set aside a further 700 million pounds to compensate people mis-sold the insurance policies, nine months after saying it had hopefully drawn a line under the scandal. ($1 = 0.7614 pounds) (Reporting By Andrew MacAskill. Editing by Lawrence White)